The interest rates for lending have been steadily falling in most places around the world, making it not only possible for people to borrow for expenses, but creating an environment where it has become common practice. Surveys carried out in different countries have shown that lending is on an upward trend in most aspects of people’s lives. However, this article would attempt to dissect and categorize the areas where the most amounts of loans are spent.

Everyday Expenses:

One of the most common types of loans take out by people is the Payday loan. It is essentially a short term loan that carries a relatively higher amount of interest for repayment. According to a major American Payday Loan company, 69% of their customers have borrowed cash from them in 2016 in order to meet their household expenses like paying bills, buying groceries and paying rent.

This information primarily accounts for borrowers who use Payday loans, however, it does not take into consideration the number of people who use other mean of loans to pay for expenses rather than short- term debt. Credit cards account for the majority of loans with respect to paying for expenses in the U.S. However, for being accepted for a credit card from an issuing company, a prospective borrower must have a good, or even a reasonable credit history to increase the likelihood of success. Most borrowers don’t have a credit history or else, have a bad one, so Payday loans act as a vital means of cash for them to keep up with expenditure.

Unexpected Expense:

In the U.S., about 16% of Payday loan customers borrow some money to meet an unexpected or emergency expense like repair of a car or medical treatment, states a report by Pew. According to another Manchester based financial research company in the UK, two of the most common reason people take out Payday loans in Britain are to pay for expenses as financial difficulties loom over the country and banks are becoming more and more vary about who they approve for a loan. The other reason that accounts for 9% of all loans taken out by Britons is boiler repairs and other home maintenance emergencies.

Leisure Buying:

One of the major reasons of taking out loans is buying non-essential leisure goods and going on vacations. This trend is apparently common in both the U.K. as well as the U.S as explained by a prominent financial research company based in the London. Nearly 8% of Americans take out Payday loans to pay for something nice like a trip, an experience or purchase presents.

Mortgage:

This type of lending is a secured, long- term loan that is usually taken out with a bank or some other financing company. According to a study about 24% of secured loans are taken out to pay for buying a house. This is an important and life-changing loan that spans decades so a good credit score is essential for securing a mortgage.

Car/ Vehicle Purchase:

One of the most common types of loans that are taken out is car- financing. Whether it is a new one or a used car, financing companies develop a number or re- payment packages for prospective buyers. This is also a type of secured loans and would require the applicant to have a good credit score for a reasonable re- payment policy. However, higher interest financing policies are also offered to people who have a poor or short credit history.

Paying for Overdraft:

The fourth most common reason for people to take out unsecured loans in the U.K. as well as the U.S. is to pay for overdraft fees. According to the U.K.s Money Advice Trust, majority of people who took out loans either from the bank or via a Payday loan company, have unknowingly drew more than what they had available in their bank account. If not repaid soon, the fines and fees could add up, therefore, borrowers tend to seek the help of Payday lenders for some quick cash.

Home Renovations:

According to one online survey conducted earlier this year in the U.K., 46% of homeowners would likely take out a mid- sized loan for improving their homes. Improvements like building extensions, repairing sections of the house or simply redesigning the look could cost a hefty sum of money and would more than often require some form of secured loan from a bank.

Majority of the reasons for taking out a loan can be avoided by ample planning or living within the means. However, even with most loans taken out in emergency situations are paid back within the required time frame. Alternative financing companies like Payday lenders fill the gap left by banks for lending money to prospective borrowers.

With an increasing amount of scrutinization of Payday Loans by Federal authorities, an interesting pattern paints itself; more people are placing their trust in short term loan companies. The trend of short term loan companies primarily started out from the U.S. in the early and mid- 2000s, however, a number of similar companies have popped up into this field across the world. These types of loans act as a godsend to the people who cannot secure a loan through the regular channel of banks.

With the boom of Payday lenders over the course of recent years, various agencies and companies have been busy compiling data to analyze the market to understand how borrowers are utilizing this sector. Although, the data would differ from country to country depending upon a number of local and regional circumstances, the primary indication points towards that the majority of borrowers are in the working age range. This characteristic seems common among most of the data collected by analyzers, regardless of national origin. A brief breakdown of the categories of the demographics can be illustrated here:

Age:

According to surveys conducted by Pew of the American public, majority of the payday borrowers were in the age bracket of 25 to 44 years old. The highest bracket of people taking out these types of loans were in between 25- 29 years old and formed up to 9% of total borrowers. They were followed by 30- 34 year olds who added up to 8% of the total.

This data matched that of Britain, where about half of the Payday borrowers made up the age bracket of 25- 44 years old. This consistency in age groups in two completely different countries is generally an indicator of similar lifestyles and spending culture among the same age groups.

Gender:

The gender difference between male and female borrowers from Payday loans in the UK are slight, according to data collected by the Citizen’s Advice Bureau. With 53% male and 47% female borrowers, the division between the two seems to be more or less split down the middle. However, information gathered in 2015 by a large lending company in the U.S. showed that most of their customers were female. With a 67% female and 33% male split between borrowers, it paints a very different picture compared to the data from the UK. However, this data does not necessarily form the entire picture of the Payday borrowers in the U.S., it only shows the gender ratio of the company’s customers. Whilst, according to a recent study by Pew, the majority of short- term borrowers are indeed female at 52%, the gender ratio in general, is not as starkly askew as reported by the lending company.

Income Groups:

According to a 2015 Pew survey, the largest borrowers belonged to a household income bracket of £30,000 to £60,000. This bracket can be further broken down to see that there are three times as many borrowers who earn less than £40,000, showing that the likelihood of taking out a short- term loan was inversely proportional to the level of a household’s income. Meaning the less a household is earning, the more likely is it to take out a loan.

The largest group of households that take out a Payday loan has an average salary between £15,000 and £25,000. The second largest are the households that earn less than £25,000 and more than £15,000. This correspondence between financial difficulty and taking out a short- term loan is predictable and could be a possible link with the next category.

Education:

Most of the borrowers tend to be from a lower income group and, as reported by a London- based financial advisor company, don’t have an advanced education. Out of the 5.5% of all American who took out a loan, 7% had some high school education. Borrowers who have had some college education also make up 7% of the 12 million adults who took out a short- term loan last year.

Dependents:

This sub section that categorizes borrowers depends upon whether or not the individual (or couple) have any dependents, like children or parents that they tend to. In the U.S., 8% of parents have taken out a loan from a Payday lender compared to 5% of non-parents who have a dependent. This rate is about the same as reported by the U.K.s Citizen’s Advice Bureau last year, with a percentage of 12% households that take out a short- term loan with combined dependents.

As can be summarized by the data, Payday loans have positioned themselves as a safety net for household that struggle to make end meet and are not able to, or not willing to contact a bank for a loan. An increasing number of lenders are aligning themselves with financial litigations, causing borrowers to place a greater amount of faith in them.

We all know what a loan is, but did you know there are no less than 12 distinct types? These vary based on their specific function, including the amount which can be borrowed, over how long, how the rates and fees are calculated, the payment terms, and many other features. Most of us will have some kind of loan in our lifetime, and many of us will have several different ones from the list below:

Student Loans

Aimed at those entering the expensive world of higher education, college campuses are full of students that have paid for their schooling via tailored made loans. Federal student loans are offered to those who fall under a certain level of household income and other criteria. Other students seek out private lenders. Student loans tend to have low comparative interest, and the borrower doesn’t always have to begin to repay until they graduate.

Mortgages

The big daddy! A mortgage will be the single largest amount of money most people will ever borrow in the lifetime, and for good reason. It’s used to buy a home. The property itself is held as collateral, so if you fail to make payments it can be foreclosed and sold on to recover what is owed.

Car Loans

If you want to purchase a nice car upfront, one popular option is to buy it on finance and kick in some interest over the long haul. These are offered by regular lenders and dealerships themselves, and come with typical monthly terms.

Personal Loans

A catch-all term for an all purpose loan issued to an individual. If you went in to a bank and asked for a loan that wasn’t for a home, business or car, this is what you would be issued. They typically range from a few hundred dollars up to $£00,000, unsecured, but the average amount sits below £10,000. They are commonly used to pay for holidays, make large one of purchases, or consolidate other debts.

Veteran Loans

One way the US Government helps its military veterans is to given them easy access to credit, so they can fund the purchase of a home or other life essentials. The Department of Veterans Affairs themselves acts as the cosigner through private lending channels, so no matter what the credit history of the veteran, they will be eligible for a loan. This also helps lower interest rates.

Small Business Loans

As the name suggests small business loans are aimed at those launching new businesses, which just need a bit of extra funding to get off the ground and become profitable. Private lenders offer these, as does the U.S. Small Business Administration (SBA). As long as you can demonstrate that the business will grow, entrepreneurs with good credit are likely to be approved.

Payday Loans

Payday loans differ from most other types of loan in that they are not paid back in instalments. The full principal and interest is expected to be repaid in as fast as two weeks, because they are designed to tide the borrower over until their next pay check. This is why the typically come in small amounts and with high interest rates.

Borrowing from Retirement & Life Insurance

If you have spent many years paying in to retirement or life insurance policies but have yet to cash them out, you can borrow against the balances and make use of that equity under similar terms to a loan. This isn’t yours to keep however and it must be paid back with interest.

Debt Consolidation Loans

These loans are specifically designed to pool together all of your debts in to one single loan, so they are easier to manage. In a lot of cases you will also be able to reduce interest rates as it is in the loan company’s best interest to get you as a customer.

Credit Card Cash Advance

Although the day to day use of a credit card is a bit like a loan anyway, one function you can use to extract cash from the balance is a cash advance. This can be transferred to your bank online or withdrawn from an ATM. Cash advances carry a higher interest rate than purchases.

Home Equity Loans

Home equity is the portion of your home that you own from paying down the mortgage. You can take out a new loan – home equity loan – against this portion to get access to cash. Like the mortgage itself, this new loan is secured by the property, so in many ways you are extending your mortgage further in to the future.

Informal Loans

Informal loans refer to money you have borrowed from friends and family. If so inclined a promissory note or other legal document can be used to make it legal.